CFA News Update - May 19, 2014

NAIC Committees Ignore the Plight of Lower-Income Good Drivers

Two committees of the National Association of Insurance Commissioners (NAIC) gave voice vote approval earlier this month to a report on the pricing of automobile insurance that fails to address the underlying problem of the accessibility and affordability of auto insurance for lower-income, good drivers. “To adopt this report calls into question the independent role that the NAIC must play in the competition of ideas concerning auto insurance oversight and consumer protection,” said CFA Insurance Director J. Robert Hunter.

The NAIC Auto Study Group, which produced the “Compendium of Reports on the Pricing of Personal Automobile Insurance,” was created in response to pressure from consumer advocates concerned about high prices and the use of potentially discriminatory rating factors to price car insurance for low- and moderate-income Americans. These problems have been documented in a series of CFA studies, which were omitted from the study group’s industry-dominated “compendium.”

“Omitting this important information, and choosing to instead focus on market competition issues and penalties for failing to carry often unaffordable insurance, does little to inform the debate on how to meet the insurance needs of low- and moderate-income drivers,” said CFA Director of Financial Services Tom Feltner.

The study group report was approved at a joint meeting of the NAIC Property Casualty and Market Regulation Committees earlier this month. Although representatives from Alabama, Washington, and California urged the committees to reconsider the balance of the report and include additional information that specifically addressed the lower-income auto insurance issue, the committees failed to do so, omitting even the original CFA report that led to the creation of the working group.

In comments filed with NAIC earlier this month, CFA and the Center for Economic Justice strongly opposed the adoption of the report. “We urge the NAIC Committees to return the report to the Auto Study Group for further work and more balance. In particular, we ask that any report of the NAIC on availability and affordability of auto insurance actually look at the issue instead of regurgitating industry propaganda,” said CEJ Executive Director Birny Birnbaum in a press statement issued in advance of the meeting.

FCC Votes to Move Forward on Open Internet Rules

The Federal Communications Commission (FCC) voted 3-2 last week to move forward on new Open Internet rules that are designed to comply with the recent ruling of the D.C. Circuit Court of Appeals. Although the proposal has been criticized from both the right and the left, CFA Research Director Mark Cooper praised the overall approach adopted by the Commission. “The FCC needs to look to the future, not the past, to develop a framework that ensures nondiscriminatory access to broadband communications and preserves the dynamic, flexibility that has been the hallmark of the Internet,” Cooper said in a press statement applauding the move.

In particular, Cooper praised the proposal for its “enhanced transparency and clearly articulated principles for evaluating the effect of service offerings on consumers, competition, and innovation.” These features of the proposal “provide key building blocks of the more flexible, participatory and collaborative regulatory model that we believe digital communications need to flourish,” he said. “The ultimate goal is to build new institutions that utilize the immense communications capacity of the digital age to enforce simple rules against discrimination without having the FCC dictate day-to-day management of the network.”

The Senate Banking Committee voted 13-9 last week to approve legislation (S. 1217) to reform the nation’s housing finance system. The bill is designed to wind down the Government Sponsored Enterprises, Fannie Mae and Freddie Mac, replacing them with a system in which a new government entity will issue mortgage backed securities that will carry a government guarantee standing behind prescribed levels of private insurance.

“This legislation is a positive step in the ongoing debate about the future of the mortgage finance system,” said CFA Director of Housing Policy Barry Zigas. “However, the bill still fails to provide sufficiently strong requirements that credit guarantors who form the heart of the system fully serve the broadest possible range of creditworthy borrowers and communities, especially those traditionally underserved by the market, such as communities of color and low and moderate income borrowers.” Zigas called on Congress to adopt further changes to S. 1217 or subsequent legislation to “strengthen its ability to assure equitable access to sustainable and affordable credit.”

It remains unclear whether the bill will be brought to the floor for a vote this year.

FDA Urged to Strengthen Proposal to Trace High-Risk Foods

In comments to the Food and Drug Administration last week, CFA called on the agency to strengthen its proposed approach to the designation of high-risk foods for tracing, as required under the Food Safety and Modernization Act (FSMA). “Ensuring timely and accurate data is critical in developing a list of high risk foods,” said Chris Waldrop, Director of CFA’s Food Policy Institute.

CFA praised the FDA’s overall approach of giving equal weight to a variety of criteria that are important in determining the risk posed by foods. However, it urged the agency to do more to ensure its ability to trace all foods, not just those known to pose a high risk. “FDA needs to be able to efficiently and accurately trace all products, including ingredients, through the supply chain,” the comment states. “While the statutory language in FSMA refers only to high-risk foods, CFA does not believe that such an approach is sufficient to protect the public.”

CFA also called on the agency to provide additional information about how frequently it will revise the high-risk designation list and what methodology it will use to do so. “The importance of revising the list is clear from past incidents where previously ‘low-risk’ foods became associated with nationwide foodborne illness outbreaks, sickening consumers,” the letter states.

Following the public comment period, FDA will issue its final approach and develop traceability regulations for foods falling into the high risk category.

House Bill Would Cripple Crucial Financial Markets Regulation

Legislation reported out of the House Agriculture Committee on a voice vote last month would cripple the Commodity Futures Trading Commission (CFTC), leaving it unable to provide the effective oversight of the commodity and derivatives markets so crucial to the stability of the financial system. In a letter to members of the House of Representatives, CFA urged members to oppose H.R. 4413, the CFTC reauthorization bill, when it is brought to the floor for a vote.

“This bill is toxic. If it becomes law, many of the significant derivatives reforms that were a part of the Dodd-Frank Act could be rolled back, and the CFTC’s authority to regulate new risks that emerge in the derivatives market could be undermined,” said CFA Financial Services Counsel Micah Hauptman.

In its letter, CFA criticized the bill for:

imposing an assortment of new, onerous cost-benefit analysis requirements on the CFTC which would delay and obstruct agency action;

creating new opportunities for industry obstruction through legal challenges to agency rules;

radically expanding judicial authority by granting courts new powers to “modify” the CFTC’s rules when they are challenged; and

subverting the agency’s authority to regulate foreign derivatives activities that have a direct and significant effect on U.S. commerce.

Because it would hamstring the CFTC, the legislation would leave consumers exposed to fraud, manipulation, and abusive practices and put the safety and stability of the U.S. financial system at risk, Hauptman warned.